The Great Displacement

Welcome to November, and it certainly feels like it here in Denver. Last weekend, we felt winter's chill as temperatures plummeted, mirroring the recent drops in the stock market and bond prices. Artificial intelligence or AI prospects had been a source of investor enthusiasm for much of the year, but October was another spooky month for many of those names. Waning fervor around these investments has removed a key source of optimism for the stock market, and now investors are struggling to find the next catalyst to propel this market higher.

In the job market, we've shifted from what some dubbed "the Great Resignation," where labor held all the cards, to new concerns about automation and job loss. But let's remember, the fear of being replaced by computers isn't a novel concept. It dates back to at least the '80s. Every time these fears re-emerge, they're ultimately deemed overblown and fade into the background—only to resurface later like the Terminator saying, "I'll be back."

And back they came. When the first smartphone debuted in the early '90s—back when I was engrossed in Super Mario Kart—we all marveled at the possibilities. Yet, decades later, while our phones may be faster and more capable, they're still not what you'd call "smart." They can't hold a basic conversation or even spell certain names correctly. Now, as AI takes center stage in 2023, fears about job obsolescence are back in the spotlight. So, is this just another false alarm, or will computers finally render us obsolete?

Investors are buying the headlines...literally

The belief this is a game-changer is apparent in the valuations of AI-related stocks. At one point this summer, the average AI-linked stocks were trading at a staggering 32 times next year's projected earnings—an expensive proposition that leaves little room for error if those expectations aren't met. Until the end of last month, the broad basket of AI stocks had surged nearly 70%.

Many of these bullish investors have a point. Generative AI technologies, such as ChatGPT, have the potential to significantly disrupt various industries. The lofty valuations indicate that investors are banking on this technology not just as a novelty, but as a transformative force that will generate sustainable earnings growth. It's a high-stakes gamble, but one that many believe will redefine the future.

Does that mean robots are going to take over?

Though generative AI can transform our lives, it’s nowhere near replacing humans. If you don’t believe me and you’re still worried about a robot invasion, all you have to do is shut your front door. It sounds facetious, but robots still haven't found a way to open a door.

We've fretted over the idea of robots replacing humans for years, a fear that's often depicted in pop culture like the Terminator movies. We keep insisting that "this time, it's different," but until robots can actually perform everyday tasks like opening your front door, perhaps it's okay to hit the pause button on the panic for another decade.

Throughout history, humans have often grappled with "obsolescence anxiety," harboring fears that technology would replace them and render their skills irrelevant. From the Luddite movement, where skilled textile workers in England protested against new labor-saving machinery, to the advent of automobiles that worried blacksmiths, carriage makers, and stable owners, these fears have been persistent. Bankers feared ATMs would lead to mass unemployment, while secretaries and typists worried the rise of computers would eliminate administrative jobs. More recently, the development of self-driving cars has caused anxiety among ride-sharing drivers.

Yet, time and time again, these fears prove to be unfounded, and generative AI is no exception. Much like technological advancements of the past, history suggests that doom-and-gloom scenarios often fail to meet the litmus test for real-world viability and don't materialize as quickly—or dramatically—as we fear. More often than not, the technology evolves to enhance, rather than replace, human labor.

While AI is great for simple tasks and data aggregation, those requiring in-depth thought have proven too difficult for AI to handle. When ChatGPT took various college exams, it excelled in questions requiring it to act as a database or provide straightforward answers. However, for questions demanding deep thought and reasoning, the AI model proved unimpressive and unreliable. For those reasons, among others, it's increasingly apparent AI has a considerable distance to traverse before replacing human capabilities, making the term "artificial intelligence" perhaps a bit optimistic.

In other words, it’s safe to tell any fears of a robot takeover, "Hasta la vista, baby."

Implications and beyond

So why am I still talking about this topic if robots aren't taking over anytime soon? Since ChatGPT made headlines, we've received a surge of questions about AI and its potential impact.

While AI has a long way to go, it's clear that it has the capability to transform industries and augment productivity. The potential of generative AI extends beyond ChatGPT, Google Bard, and Microsoft Bing. This technology offers powerful new ways to use and access data. Think about automatically labeling every piece of data ever created and then retrieving it with a simple voice or text command. Once you start considering the possibilities, the recent hype around AI starts to make sense. AI stands poised to join the ranks of game-changing innovations like the telephone, computer, internet, email, and Microsoft Office, becoming one of the most pivotal tools for amplifying human productivity.

Like any tool, effective use hinges on the human operator—planes require pilots, computers need users, and phones can't answer themselves. So, it's not about replacing us, but about amplifying our abilities. One study from Harvard Business School and Boston Consulting Group found that management consultants using ChatGPT could accomplish 12% more tasks, complete them 25% faster, and improve their quality by 40%. With increased productivity, we can generate more wealth, which can be used to invest in things we deeply care about, thereby fostering better institutions, elevating society, and enhancing our lives. And that's why the excitement about generative AI is warranted.

Noble Wealth Pro Tip of the Month

Consider a High-deductible plan this open enrollment season

Voya Financial conducted a study comparing high-deductible plans with Preferred Provider Option (PPO) plans. The result? Seventy-five percent of employees would be better off with a high-deductible plan and an HSA. Despite this, the study found that employees are often swayed purely based on the name of the plan. In one example, where the total premiums paid for the plan were more than the difference in the maximum out-of-pocket costs between the PPO and HSA, the high-deductible plan still had a lower total cost after factoring in the premiums. Yet, 65% of employees still chose the PPO plan. The study also estimated that a 40-year-old employee could add about $28,000 to their savings by opting for a high-deductible plan, based on average care and healthcare expenses.

Fun Facts of the Month

Back-to-back bond market drops: The Bloomberg Aggregate Bond Index, which tracks the U.S. investment-grade bond market much like the S&P 500 tracks the U.S. large-cap stock market, fell 13.9% in 2022 and is down another 5.4% as of October 3, 2023 (Wall Street Journal).
Millennials are good for saving: According to a Vanguard study, the retirement outlook for millennials is brighter than for their older counterparts. Millennials are projected to replace nearly 60% of their pre-retirement income through Social Security and savings vehicles like 401(k) plans, compared to about half for Gen Xers and younger Baby Boomers (Wall Street Journal).
The AI advisor: A recent survey by the Certified Financial Planner Board revealed that 51% of U.S. adults have little or no trust in financial advice from generative AI tools (CFP Board). Only 11% think AI or social media will replace financial advisors, while 25% disagree. The majority, 52%, believe these technologies will supplement human advisors.
Pensions are healthier: Despite market volatility and declines in fixed income, state and local pension plans in the U.S. are projected to be 78% funded for 2023, a post-Financial Crisis high. This compares to 76.2% in 2022 and 72.9% in 2019, before the onset of COVID-19.
Shut it down: Since 1990, the U.S. has experienced six partial or full federal government shutdowns. Their impact on the stock market has generally been minimal. In the month before and after each shutdown, the S&P 500’s median performance gained 5.5%, posting positive returns five out of six times (Wikipedia, Bespoke).
Retirement problems: While financial concerns often top the list of retirement worries, a recent survey found that for current retirees, issues like loss of identity (53%), lack of routine (32%), absence of friends (24%), and lack of community (18%) all ranked higher than financial difficulties (10%) (Retirement Coaches Association).
New highs for houses: The S&P CoreLogic Case Shiller National Home Price Index reached a new high in July 2023 after a 5% pullback from June 2022 through January 2023. Ten of the twenty cities tracked also hit new highs, including New York and Boston (S&P CoreLogic).
Wealthy seeking advice: A Harris Poll survey revealed that 70% of millionaires work with a financial advisor, compared to just 37% of the general population. Among millionaires, 53% consider their financial advisor their most trusted source of advice (Northwestern Mutual).
Record streak of inversion: As of September 12, the spread between yields on the 10-year and 3-month U.S. Treasuries has been inverted for a record 210 trading days (Bespoke). This has happened only twice before since 1962. In 1980, the economy was already in a recession at this point, while in 2007, the recession started six months later.
The Honey Deuce: The $22 Honey Deuce cocktail, a blend of Grey Goose vodka, lemonade, raspberry liqueur, and honeydew melon garnish, was the official drink of the recently concluded U.S. Open. Sales were projected to exceed $10 million, translating to more than 450,000 individual drinks sold over the tournament's two-week span (GreyGoose.com).

What We’re Reading and Enjoying

The Everyday Warrior | Mike Sarraille

The everyday warrior champions the idea that failure serves as both a valuable teacher and motivator, helping build resilience, drive, and a balanced well-being. While social media can fuel a sense of victimhood and external validation, it's essential to prioritize self-awareness and individual definitions of success. Activities like meditation and journaling, along with cultivating meaningful relationships, contribute to emotional stability. By embracing failure as a learning opportunity and focusing on internal growth rather than external comparison, one can achieve a fulfilling, purpose-driven life.

NWP Monthly Digest | November 2023